In the late 1990s, The Body Shop International PLC, previously one of the fastest growing manufacturer-retailers in the world, ran aground. Although the firm had an annual revenue growth rate of 20% in the early to middle 1990s, by the late 1990s, revenue growth slowed to around 8%. New retailers of the naturally based skin- and hair-care products entered the market, bringing intense competition for The Body Shop. Amidst the competition, The Body Shop failed to maintain its brand image by becoming something of a mass-market line as it 1 2

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One of our greatest frustrations at The Body Shop is that we’re still judged by the media and the City by our profits, by the amount of product we sell, whereas we want and have always wanted to be judged by our actions in the larger world, by the positive difference we make.3 —Anita Roddick

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Roddick, as self-righteous as she is ambitious, professes to be unconcerned [with financial results].… “Our business is about two things: social change and action, and skin care,” she snaps. “Social change and action come first. You moneyconscious people … just don’t understand.” Well, maybe we don’t, but we sure know this: Roddick is one hell of a promoter.… She and her husband, Gordon, own shares worth just under $300 million. Now that’s social action.2

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THE BODY SHOP INTERNATIONAL PLC 2001: AN INTRODUCTION TO FINANCIAL MODELING

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expanded into “almost every mall in America, as well as virtually every corner on Britain’s shopping streets.”4 Anita Roddick, founder of The Body Shop, stepped down as chief executive officer (CEO) in 1998,5 after numerous unsuccessful attempts to reinvent the company. Patrick Gournay, an executive from the French food giant Danone SA came on board as CEO. However, problems persisted despite the management change. In fiscal year 2001, revenue grew 13%, but pretax profit declined 21%. Gournay said of the results, “This is below our expectations, and we are disappointed with the outcome.”6

If you feel comfortable using Exhibit 8 to prepare the next three years of financial statements and to demonstrate The Body Shop’s debt financing needs, you might be better served by scanning the next few sections on basic financial modeling and concentrating on the last section of the case (Roddick Wants to Know). From experience, however, a vast number of students have found the following exercises to be invaluable in their early understanding of financial modeling.

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...History of The BodyShopInternational
In the early to mid 90's, the revenue growth for The BodyShop was at least 20% each year. The BodyShop was able to grow at a fast pace early in the decade because of the lack of competition. Over the course of the decade, competition grew fierce, and, by the end of the decade, revenue growth fell to 8%. Another reason for the slow growth in the late 90's was the over expansion in the previous years. The BodyShop was in almost every mall in America (and on every shopping street in Britain). It is time for The BodyShop to forecast earnings so it will not be blind-sided by another decline in pretax profit.
Because of the lack of revenue growth, Anita Roddick (founder of The BodyShop) was forced to step down from the CEO position. The new management team, assembled by the new CEO Patrick Gournay, was able to increase revenue by 13% in its first year (2001). However, in its attempt to grow the revenue, The BodyShop lost 21% in its pretax profit due to a lack of forecasting through the use of financial modeling.
Financial Forecast for the Years Ended February 28, 2002, 2003, and 2004 (In GBP Millions)
2002 2002 2003 2003 2004 2004
(GBP) (% sales) (GBP) (% sales) (GBP) (% sales)
Income...

...The BodyShopInternationalPLC 2001: An Introduction to Financial Modeling
The following graph presents the forecast for the Body Shop’s income statement and balance sheet in 2002 to 2004:
How did you derive your forecast? Why did you choose the “base case” assumptions that you did?
The forecast takes into considerations the stated business objectives of the BodyShop as well as trends or patterns in the historical financial statement in exhibit 8. Further information on the calculations and assumptions underlying the forecast is to be explained for each account individually in the following section:
Assumptions related to the sales growth, expenses and earnings parameters
Sales growth: Given the Body Shop’s growth level of 20% in the early 1990’s and its newly implemented strategy, it is assumed that the BodyShop will be able to sustain a relatively high growth rate in the future years, however the Body it will not be able to generate sales growth at the early 1990’s level due to increased competition in the market. In 2000 the sales increased by 8.7 % and in 2001 it increased by 13.3% The Body Shop’s sales are forecasted to increase by 11 % per year in 2002, 2003 and 2004. Thus, it is assumed that the past years trend of increasing sales growth will continue until 2004, however at a steady rate...

...The BodyShop was one of the fastest growing manufacturer- retailers in the late 1990s. However, throughout the years, they failed to maintain its brand image by becoming something of a mass-market line. Anita Roddick, the shops founder and Patrick Gournay, CEO are looking for assistance in short and long-term planning for The BodyShop. The goal is to yield practical insights while being straightforward. To get started, we assumed the growth rate for sales is 13%; the cost of goods sold percent change is 38% changes, and a 50% change for operating expenses. The amount of external financing, the variables affecting the estimates, what the best way to raise the financing, along with important ratios, the internal growth rate, the sustainable growth rate, and future recommendations will all be discussed.
External financing helps companies to be profitable and obtain growth. One way to determine if external financing is needed is to look at the pro forma balance sheet, if the trial assets are less than the trial liabilities, a company will not be in need of external financing. The opposite is also true. If the trial liabilities are less than the trial assets, than the company will be in need of external financing. While looking at the trial assets and liabilities, The BodyShop will not need external financing in 2002. The trail assets are £187 million compared to the trial...

...The BodyShopInternationalPLC was once one of the fastest growing manufacturer-retailers, but in a decade’s time their revenue growth slowed from 20% to nearly 8%. These types of results were not uncommon in companies who are experiencing rapid growth but this was a dramatic decrease and, needless to say, a wake up call to management. Competition was increasing and The BodyShop had failed to establish a brand presence during its expansion. Anita Roddick, founder and CEO, attempted to reinvent the company but after a failed attempt would be stepping down and a new CEO would be taking over. Roddick did not necessarily have much financial experience and therefore assumed expanding the business was the top priority and everything else would just fall into place.
Patrick Gournay took over as CEO but The Body Shop’s problems that persisted during Roddick’s reign did not necessarily dissolve. Gournay had a plan to implement a new strategy that consisted of enhancing the brand through a focused product strategy and increased investment in stores, create an efficient supply chain by reducing product and inventory costs, and reinforcing the stakeholder culture. Through this strategy, revenue experienced a growth of 13% but pretax profit fell 21%. The expansion of the firm was too rapid and in result sales saw a decline. Their growth rate declined as major competitors entered the...

...The BodyShopInternational
Case Facilitation
Group 6
Gajanan K.
:
Divya M.
:
Deepak K.
:
Saif Khan
:
S. Manishanker :
Roll No. 2216
Roll No. 2214
Roll No. 2213
Roll No. 2240
Roll No. 2018
“Business people have got to be the instigator of change.
They have the money and power to make a difference.
A company that makes a profit from the society has a
responsibility to return something to that society.
Dame Anita Roddick
Founder & Managing Director of “The BodySHOP”
Introduction
 The BodyShopInternational is the natural and ethical beauty brand, with over
2,600 stores in over 61 markets worldwide.
 It is the first international cosmetics brand to be recognized under the
Humane Cosmetics Standard for our Against Animal Testing policy.
 The first BodyShop store was open on 26th March 1976 in Brighton, UK
 1978 a kiosk in Brussels, Belgium became the first overseas franchise outside
UK
 1982 new shops open at the rate of two per month.
 1985 -The BodyShop went public on the UK unlisted securities market
 Became officially involved with Greenpeace in 1986
 In March 2006, the company agreed to a £652.3 million takeover
by L’Oreal corporate group.
 On 10th September 2007, Anita Roddick, passed away at the age 64.
 In2008...

...Assumptions
We are going to show a three years forecast for The BodyShopInternational; it consists of three main objectives:
• To enhance The BodyShop brand through a focused product strategy and increased investments in stores;
• To achieve operational efficiencies in the supply chain by reducing product and inventory costs;
• To reinforce the stakeholders culture.
We extrapolate each account using the percentage of sales of year 2001 to have a first look on the evolution of the financial statements regarding to sales’ growth. We choose to use the percentage of sales of the most recent year to try to fit best the actual situation of the society.
This choice didn’t restrict our analysis of the society because in parallel we used a sensitivity analysis to see the accounts susceptible to have a direct impact on the benefits. Thanks to this sensitivity analysis we were also able to see the impact of a significant upward or downward in a particular account.
Because we decided to extrapolate each account regarding to the percentage of sales we had to make an assumption on the sales growth. To compute this number we first looked the growth from 1999 to 2001 (8.7% from 1999 to 2000 and 13.3% from 2000 to 2001) and we decided to apply a growth rate of 12%. Patrick Gournay (CEO) indicates in the first part of the case study that the newly implement strategy would produce...

...The BodyShopInternational Case Study
1. The assumptions that were used to derive the numbers in this forecast were found by taking the averages of the historical data that was given for 1999-2001. Instead of using the assumptions that were given by The BodyShop, I thought it would be more practical to use the trends shown in the historical data since that is more relevant to what might happen, rather than what The BodyShop wants to see happen. Of course it is possible to take reducing expenses and raising income into consideration but it is more realistic to follow the trends of the most recent years.
It is however important to keep in mind that improvement from year to year is always good to see and if the current trend is one that is sending a company into the red, then something will need to change. A company always wants to be profitable and to stay afloat so forecasts should be used to see where a company might be heading if things were to continue the way they are, or even what changes might happen if corrective measures were to be taken.
In this forecast, a constant increase in sales was used, which was found by taking the average increase between 1999 to 2000 and 2000 to 2001. Of course these sales figures might not be met in the future which would severely lower the overall profit after tax. With this in mind, it is important to be prepared to meet...